When you have a real estate closing, what happens is the legal ownership of a house is transferred from the seller to the buyer. All appropriate home loan documents are signed for purchases being financed with a mortgage.
- After signing your purchase agreement, the closing date is agreed upon by all parties. This is an average of 30-60 days.
- During closing, the money is transferred from the buyer to the seller in two separate transactions. The first part is the remainder of the buyer’s down payment. The second part is when the lender’s funds are paid. These funds are the difference between the home sale price and the down payment.
- All documents are signed with the deed of ownership being transferred to the buyer. You should be prepared to come to sign with all of your paperwork. This is usually your ID, your new homeowner’s policy, and your cash-to-close.
Preparing to Close On Your Home
The last few years averaged around six million homes being sold nationwide. That is the largest amount in nearly a decade. Each of these real estate transactions will end in a closing. When the ownership of the home is transferred to the new owner, this is the last thing you will do before you get your keys.
Even for experienced buyers, closing can be a stressful time. You will see what seems to be an endless number of documents and paperwork. Learning more about the process will provide you with the information you need to feel more confident and enter into the world of homeownership, stress-free.
What Exactly Is a Real Estate Closing?
Depending on where you live real estate closings can go by a different name. Some areas refer to it as just “closings” and others call it “settlements.” In California, they call closings “escrow,” which is even more confusing because it’s not the same as the other type of escrow.
No matter the name, the purpose of a real estate closing is the same. You are legally transferring the ownership of the home from the seller to the buyer. If the home is going to be financed with a mortgage, you will sign the required home loan documents. There may be other documents to sign, such as disclosures and guarantees. You should expect to sign or initial at least 200 times.
The Process Between Contract and Closing
The day your purchase agreement is signed begins your journey to closing. The agreement will state your closing date, which is a date all parties will agree upon. The location for the closing will also be assigned. Closings tend to be scheduled 30 to 60 days out. This is just an estimate, the closing can be sooner or further out than this depending on some factors.
It’s common for the closing to not happen for a year or longer when it’s a contract for new construction. The period between the contract and closing is usually called being “in escrow.” This is when the sale is not yet complete, it is pending. During this period, the buyer will order an inspection of the home and get mortgage financing in place.
After signing it can feel a bit rushed for a while. If you have already been pre-approved, as soon as you are under contract, you can lock in your mortgage rate. If you haven’t already found a lender, you should do that as soon as possible.
You should also keep your mortgage approval paperwork organized and on hand. Mortgage approvals can be issued fairly quickly, but delays can jeopardize your closing and cost you money.
During the approval process, your lender will need proof of your income and asset verification, signatures on disclosures, and other documents that loan guidelines require. The lender will also request an appraisal to be conducted. After all of this is complete, there will be a final underwriting approval issued, also known as “clear-to-close.”
What to Expect on Closing Day
A Title Agency is typically who will handle your closing. Some states also allow an attorney to do it.. Once all of the required signatures are secured, the last step is for money to be transferred from the buyer to the seller.
This is usually done in two parts. The first part of the transfer is usually the remaining portion of the home buyer’s down payment. This is the down payment amount minus whatever earnest money was paid. These funds can’t be made to the seller in cash or with a personal check. The only accepted funds are a cashier’s check or wire transfer.
The second part is funding from the lender. This is the difference between the buyer’s down payment and the property’s sale price. For zero-down loans like USDA and VA loans, there is no down payment and the earnest money deposit is usually returned.
After all of the documents are signed and the funds are transferred, the deed of ownership will then be transferred from the seller to the buyer. This will be recorded by the officiant, the title company representative, or the attorney. After this, you will be the new homeowner.
There are some documents that you should bring with you just in case you need them. Make sure to bring a valid government ID, like a driver’s license or passport. A copy of your new homeowner’s insurance policy is good to bring as well. This will show that your new home will be covered beginning on the date of closing.
Whether it’s a cashier’s check or wire transfer, having your “cash-to-close” ready to go is great. You will already know what this amount is before closing. Everything else you need will be ready for you when you get there.
